STUDENT LOAN DEFAULTS ON RISE

Assuming that Lansing, Michigan, is typical of national trends, there’s a crisis brewing when it comes to student loans.

Lansing is the home of Lansing Community College. East Lansing, a city that borders Lansing, is home to Michigan State University, so higher education is a big factor in the local economy. Not too far away is Ann Arbor, home of the University of Michigan. Both universities are Big Ten universities here in the US.

These institutions of higher learning hardly suffered after the financial collapse in 2008. A friend once described Ann Arbor as “a reality free zone.” But reality has a habit of eventually catching up on people, institutions and countries. They can’t avoid trouble forever.

“Student loan defaults on rise at LCC” ran a headline in today’s Lansing State Journal (April 26th). “The recession years brought a boom in enrollment to Lansing Community College and a boom in borrowing.” IOW, they did not suffer like the rest of us.

Continuing: “In 2007-08, the year before the markets collapsed, LCC students took out just under $29 million in federal student loans. Three years later, that number topped $68 million. More borrowers were borrowing more money.”

Ironically, the reason why more borrowers borrowed more money was the recession itself. People lost their jobs and went back to school for further training. (That, of course, has led to a great deal of disappointment as, upon graduation, the jobs aren’t there, leaving many to feel higher education is not worth it. That could be a further problem for colleges and universities in the future.)

Anyway, “of the 3,779 former LCC students who began repaying their student loans between October 1, 2009 and September 30th of the following year, 653 of them went into default over the next two years. That’s 17.2 % . . .”

A few weeks ago, it was announced that student loan debt had reached over $1 trillion. The President promised to do something about it, which, likely, will simply result in government taking over some of that debt, adding to the country’s financial woes.

What’s needed is a deeper look at this problem.

A television news program this week showed that thousands of Americans are now moving to Canada for higher education as the cost is roughly a quarter of what American institutions charged. That’s a staggering difference. While the rest of the country had to economize after the financial crash, academic institutions continued to raise their prices for tuition, room and board, as if nothing had happened.

Is it possible that student loans in the US have actually enabled higher education to keep charging more, knowing that the kids can always borrow the money from Uncle Sam? Never mind the kids, after they get a degree, they will be earning good money and will happily pay it all back!

However, that’s not happening any more.

Millions of young people can’t find a well paid job, can’t afford to buy their own place so they go back to Mom and Dad, can’t afford to marry and start a family, hence the falling birthrate. Post-WWII expectations are no longer guaranteed.

Student loans are only part of the problem. But they are a large part of it.

What’s surprising is that the local rate of defaults is only 17.2%.

At some point this bubble is going to burst and the consequences could be worse than when the housing bubble burst in 2006.